FIN351_Chapter2 - Chapter 2 Financial Markets and...

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1 Chapter 2 Financial Markets and Institutions Some Important Concepts
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2 Topics Covered Financial Markets and Institutions Functions of Financial Markets and Intermediaries Value Maximization and Cost of Capital
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3 Investments and Financing Financing Decision Raising money that the firm needs for its investments and operations. Investment Decision (also called the Capital Budgeting Decision) Decision to invest in tangible or intangible assets.
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4 Investments and Financing Financing Decisions Issue more shares Borrow from a bank Investment decisions How do investors value the firm? What level of profitability do investors require from the firm’s capital investments?
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The Flow of Savings to Corporations Corporation Issue Securities Cash Investors Cash Reinvested Investment in real assets Shareholders in closely held corporation
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The Flow of Savings to Corporations Corporation Investment in real assets Investors worldwide Financial markets Stock markets Fixed-income markets Money markets Markets for Commodities Foreign exchange Derivatives Financial Intermediaries Mutual Funds Pension funds Financial Institutions Banks Insurance companies Reinvestment
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7 Financial Markets Financial Market A market where securities are issued and traded.
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